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October 27, 2010

At Schwab Impact, Skepticism Voiced Over 'New Normal'

Advisors respond to Hobson and Sonders's questioning whether 'It's different this time'

During the pre-conference opening session at Schwab Impact 2010 in Boston on Tuesday evening, advisors in the audience responded warmly to skepticism that the markets and economy is marked by a “new normal” as espoused by PIMCO’s Bill Gross and Mohammed El-Erian.

Responding to a question from CNBC’s Maria Bartiromo at the opening session, Mellody Hobson, president of Ariel Investments, received loud murmurs of approval when she questioned whether there is such a thing as a “new normal.”

While both Hobson and Liz Ann Sonders, chief market strategist for Charles Schwab Co., expressed nothing but respect and admiration for Gross and El-Erian, Hobson asked whether it was “normal” for people to apply for and get mortgages without showing the ability to pay those mortgages, and whether it was “normal” for the 300-million strong U.S. population to receive 3 billion solicitations for credit cards, or for Americans to carry an average of five credit cards and to have an average credit card debt of $12,000.

Now that Americans are saving again and being more cautious in their spending habits, both of which Hobson said were more in the American tradition, the stage was being set for a more fundamentals-based economic recovery. “Everyone has cleaned up their balance sheets,” Hobson pointed out, “both corporate American and consumers. That’s why I’m optimistic.”

What has also changed, and which Hobson suggested was an issue for the entire financial services industry and advisors in particular, was the new lack of trust in financial services in general.

Sonders suggested that moving forward, business investment “will be a growing driver of GDP with consumer spending less of a driver,” also citing the potential for American exports to drive the economy, and “eventually,” housing, “once we get through foreclosures, which will bring down inventory” of housing.